What is a seller carry-back, and when does it make sense?

Question

Turnrow Capital · Accepted Answer

A seller carry-back means the seller finances part of the price themselves: you deed the property at closing and sign a note back to the seller, typically 10–50% of the price. It makes sense when the seller wants installment-sale tax treatment and the buyer wants to shrink the cash gap.

The mechanics are ordinary real estate: promissory note, recorded deed of trust or mortgage, amortization schedule, and a servicing arrangement. Terms are whatever the parties negotiate — commonly 5–10 years with a balloon. Sellers with low basis often prefer this over a lump sum, because an installment sale spreads capital gains across the payment years.

The friction point is lien position. If you also need a third-party loan, that lender will require first position, pushing the seller's note to second. Many sellers accept a second lien at 10–20% of price; few will carry a large second behind a large first. Negotiate the stack explicitly in the contract, not at closing.

For buyers, a carry-back is cheap flexibility: no underwriting, negotiable rate, and a counterparty who wants the deal to work. The risk is symmetrical — miss payments and the seller forecloses like any lender would.